Despite home prices soaring out of reach for all too many, a large majority still believe homeownership is a worthwhile pursuit.
More than half (59%) of those surveyed in RBC’s latest Home Buying Sentiment Poll say home prices in their area are now "unaffordable."
The average budget for homebuyers is $445,237, according to RBC. That’s well below the national average home price, which was over $603,000 at the time this is being written.
Buyers are Persistent
Most potential buyers remain undeterred. A large majority (80%) still believe homeownership is a good investment. More than half (56%) say they still hope to purchase a home with their spouse or partner.
"Many Canadians continue to be financially resilient in the face of the pandemic, and this has carried over into the real estate market,” said Amit Sahasrabudhe, VP, Home Equity Financing, Products and Acquisitions, at RBC.
"Seen as a pillar of stability, Canadians continue to view homeownership as a worthwhile pursuit and are willing to shift their priorities in order to find affordable property within their budget."
These results echo a similar Scotiabank survey from the fall that found nearly one in five young Canadians aged 18-34 who said the pandemic has accelerated their plans to purchase a home or investment property.
It’s not difficult to see why. With lockdowns continuing, many now spend the majority of their waking hours at home, confined to smaller living spaces. Never before have so many wished they could upgrade to a larger, more functional living space in a greener location.
And then, of course, there’s the fear of missing out (FOMO). When prices ascend five times faster than incomes, hopeful buyers feel they only have so much time to act.
In Search of Affordability
High prices continue forcing new homebuyers farther outside of metropolitan areas in search of value.
Unsurprisingly, interest in the detached home segment (51%) has far outpaced other housing types, with demand for condos a distant second (18%).
- More than a third (38%) of respondents planning to buy a home in the next two years said they are looking to upsize.
- An equal percentage (38%) said they are specifically looking at properties in the suburbs or a commuter city.
- About a quarter (26%) plan to look beyond the suburbs and purchase in a rural community.
- Just 14% now plan to buy a home in a metro area.
If looking outside the city still doesn’t net you an affordable home, here are five ways you can amplify your borrowing power and get on the property ladder quicker:
- Choose a longer amortization — If you’ve got a 20%+ down payment, you can get 30-year amortizations at record low rates. A longer amortization can cut your monthly payment by up to 13%, or $165 a month on the average mortgage size, and help you qualify for a bigger mortgage.
- Get a roommate — Talk a friend or relative into splitting homeownership costs with you. Just be sure you have an iron-clad co-habitation agreement in case they don’t live up to their side of the bargain.
- Tap the parental bank — If you can convince mom and pops to supplement your down payment, your debt ratios will drop (on paper at least), allowing you to qualify for a bigger mortgage.
- Find a co-signor — Adding more income to your mortgage application, relative to debts, allows you to qualify for a bigger mortgage. A co-borrower makes that possible — so long as they qualify and have lower debt ratios than you.
- Choose an alternative lender — Non-prime lenders give you more debt ratio flexibility. That helps you qualify for a bigger mortgage. But you’ll pay at least one percentage point more on the rate, assuming you’re well qualified. Some such lenders even allow 35-year amortizations or interest-only loans to boost your buying power further. One tip, however: This is a strategy mainly for otherwise well-qualified borrowers who expect a material jump in income within a few years. You need to ensure you can qualify for a regular mortgage in a few years to lower your borrowing costs.
An experienced mortgage broker is your best resource for evaluating the above strategies. Just remember, the last thing you want to do is shoehorn yourself into a new home you can’t afford. So, budget carefully to ensure a big monthly payment doesn’t keep you housebound, Covid-style.